Small and mid-caps outperformed large caps during moderate trading last week. Both the Dow and S&P 500 closed the week down around 0.5%, while the Nasdaq fell a bit more. The small caps of the Russell 2000 posted notable weekly gains and edged closer to the Nasdaq in year-to-date performance. While investors may have moved away from stocks last week, they didn’t necessarily put their money in long-term bonds, as prices fell and yields climbed higher. The yield on the 10-year Treasury note reached 3.12% last Thursday — a seven-year high.

The price of crude oil (WTI) rose again last week, closing at $71.40 per barrel, up from the prior week’s closing price of $70.58 per barrel. The price of gold (COMEX) fell to $1,292.50 by early Friday evening, down from the prior week’s price of $1,319.50. The national average retail regular gasoline price increased to $2.873 per gallon on May 14, 2018, $0.028 higher than the prior week’s price and $0.501 more than a year ago.

Market/Index

2017 Close

Prior Week

As of 5/18

Weekly Change

YTD Change

DJIA

24719.22

24831.17

24715.09

-0.47%

-0.02%

Nasdaq

6903.39

7402.88

7354.34

-0.66%

6.53%

S&P 500

2673.61

2727.72

2712.97

-0.54%

1.47%

Russell 2000

1535.51

1606.79

1626.63

1.23%

5.93%

Global Dow

3085.41

3108.41

3086.05

-0.72%

0.02%

Fed. Funds target rate

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.96%

3.05%

9 bps

64 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Retail sales of consumer goods and services increased 0.3% in April, and are up 4.7% over the past 12 months. April’s gain follows a 0.8% price jump in March. For April, gasoline station sales were up 0.8% and have advanced 11.7% over the year. Nonstore (internet) sales climbed 0.6% in April and are up 9.6% over the past 12 months. Clothing store sales enjoyed notable increases — 1.4% for the month and 4.1% for the year.

The number of building permits and housing starts fell in April from March, but housing completions increased. Building permits issued for privately owned housing units (all housing types) were 1.8% lower in April, but are 7.7% ahead of their April 2017 rate. Single-family permits actually increased by 0.9% for the month. Housing starts in April were 3.7% below their March rate, although single-family starts were 0.1% ahead of March. While April’s housing completions were 2.8% above their March rate, single-family completions in April fell 4.0% below their March level, which won’t help the already strained inventory of new homes for sale.

Industrial production rose 0.7% in April, according to the Federal Reserve report. This marks the third consecutive monthly increase. Over the last 12 months, industrial production has increased 3.5%. In April, manufacturing increased 0.5%, mining gained 1.1%, and utilities climbed 1.9%. Capacity utilization for the industrial sector climbed 0.4 percentage point in April. Through the early part of 2018, manufacturing looks to be a positive contributor to this year’s economic growth.

In the week ended May 12, there were 222,000 initial claims for unemployment insurance, an increase of 11,000 from the previous week’s level. The advance insured unemployment rate once again fell 0.1 percentage point to 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended May 5 was 1,707,000, a decrease of 87,000 from the prior week’s level, which was revised up by 4,000. This is the lowest level for insured unemployment since December 1, 1973, when it was 1,692,000.

Eye on the Week Ahead

The housing market rebounded in March as both new and existing home sales experienced positive growth over the prior month. The residential sales figures for April are out this week and will certainly be impacted by scant inventory. March also was a good month for durable goods, as new orders increased by 2.6%. April’s information should prove similarly positive.

Boosted by higher oil shares and rebounding tech stocks, the benchmark indexes listed here advanced markedly for the first time in several weeks. Gains were enough to push each of the indexes into the black year-to-date, led by the Nasdaq and the Russell 2000. By last week’s end, each of the indexes posted gains exceeding 2.0%. Not since the week ended April 13 have the indexes listed here posted gains exceeding 1.0%. Investors also may have taken comfort in the presumption that inflation isn’t heading skyward based on the modest increase in the Consumer Price Index. Soft prices may preclude, at least temporarily, the Federal Reserve from increasing interest rates.

The price of crude oil (WTI) continued to surge last week closing at $70.58 per barrel, up from the prior week’s closing price of $68.26 per barrel. The price of gold (COMEX) jumped to $1,319.50 by early Friday evening, up from the prior week’s price of $1,316.70. The national average retail regular gasoline price decreased to $2.845 per gallon on May 7, 2018, $0.001 lower than the prior week’s price but $0.473 more than a year ago.

Market/Index

2017 Close

Prior Week

As of 5/11

Weekly Change

YTD Change

DJIA

24719.22

24262.51

24831.17

2.34%

0.45%

Nasdaq

6903.39

7209.62

7402.88

2.68%

7.24%

S&P 500

2673.61

2663.42

2727.72

2.41%

2.02%

Russell 2000

1535.51

1565.60

1606.79

2.63%

4.64%

Global Dow

3085.41

3044.54

3108.41

2.10%

0.75%

Fed. Funds target rate

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.95%

2.96%

1 bps

55 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The Consumer Price Index increased 0.2% in April after falling 0.1% in March. Over the last 12 months, the CPI has risen 2.5%. Gasoline prices (3.0%) led the price increase in energy (1.4%), which essentially carried the overall CPI. The index less food and energy (core prices) rose 0.1% for the month, and 2.1% for the 12 months ended in April. Of particular note, over the past 12 months, prices for energy (7.9%), gasoline (13.4%), and fuel oil (22.6%) have increased substantially.

Producer prices moved very little in April, up a scant 0.1% over March, when prices jumped 0.3%. In fact, the bump in prices is attributable to a 0.1% rise in the prices producers got for services — prices for goods were unchanged in April. Not unexpectedly, steel and aluminum prices increased over the month. Producer prices are up 2.6% for the 12 months ended in April.

The number of job openings increased by nearly 500,000 in March over February. Hires dropped slightly while total separations increased marginally. Of note, the gap between job openings and hires is 1.125 million, indicating that employers are having a hard time filling positions.

The federal government enjoyed the largest April budgetary surplus on record, bolstered by large individual tax deposits. For April, total government receipts were $510.45 billion, while government outlays were $296.12 billion, netting a monthly budget surplus of $214.26 billion. Through the first seven months of the fiscal year, the budget surplus sits at $385.44 billion. Over the same period last year, the federal budget surplus was $344.43 billion — a difference of about $41 billion.

S. import prices increased 0.3% in April following a 0.2% decline in March. Prices for U.S. imports rose 3.3% between April 2017 and April 2018. Fuel and petroleum prices notably increased, adding to the overall cost of imports. Prices for U.S. exports rose 0.6% in April, after increasing 0.3% in March. U.S. export prices increased 3.8% over the past year, the largest 12-month increase since a 4.8% rise for the year ended November 2011. Prices for agricultural exports fell 1.2% in April after recording a 3.2% rise in March. China’s shutdown of U.S. soybean imports may have impacted the drop in agricultural export prices.

In the week ended May 5, there were 211,000 initial claims for unemployment insurance, unchanged from the previous week’s level. The advance insured unemployment rate rose to 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 28 was 1,790,000, an increase of 30,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

If the recent purchasing managers’ survey responses are any indication, this week’s Federal Reserve report on industrial production should be encouraging. The latest figures on new residential construction for April are also out this week. Building permits and housing starts were strong in March, but bad weather throughout the country slowed housing completions. April’s report should show a more favorable rate of new home completions.

Despite a closing rally last Friday, large caps closed the week down from the prior week. The tech-heavy Nasdaq and the small caps of the Russell 2000 fared better, up 1.26% and 0.60%, respectively. The jobs report sent mixed messages to investors, with the lowest unemployment rate in several years being offset by minuscule wage growth. Mixed corporate earnings reports coupled with the Fed’s decision to maintain interest rates raised the question of whether economic growth is slowing. Meanwhile, the rhetoric following trade talks between the United States and China seemed positive. Actions may speak louder than words, however, as China shut off all imports of U.S. soybeans in apparent retaliation for U.S. tariffs.

The price of crude oil (WTI) continues tracking higher. Last week’s closing price of $69.81 per barrel was up from the prior week’s closing price of $68.26 per barrel. The price of gold (COMEX) fell to $1,316.70 by early Friday evening, down from the prior week’s price of $1,337.60. The national average retail regular gasoline price increased to $2.846 per gallon on April 30, 2018, $0.048 higher than the prior week’s price and $0.435 more than a year ago.

Market/Index

2017 Close

Prior Week

As of 5/4

Weekly Change

YTD Change

DJIA

24719.22

24311.19

24262.51

-0.20%

-1.85%

Nasdaq

6903.39

7119.80

7209.62

1.26%

4.44%

S&P 500

2673.61

2669.91

2663.42

-0.24%

-0.38%

Russell 2000

1535.51

1556.24

1565.60

0.60%

1.96%

Global Dow

3085.41

3075.04

3044.54

-0.99%

-1.32%

Fed. Funds target rate

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.95%

2.95%

0 bps

54 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

While noting that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate, the Federal Open Market Committee nevertheless decided to maintain the federal target rate range at 1.50% to 1.75%, essentially due to moderated household spending. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate. After indicating that the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data, there is nothing in the Committee’s statement to indicate whether rates would be increased following its next meeting in June.

There were 164,000 new jobs added in April, according to the latest employment figures from the Bureau of Labor Statistics. But the big news is that the unemployment rate dropped to 3.9% — the lowest it’s been since December 2000. Wages didn’t gain much, increasing a scant 0.1% last month. Over the past 12 months, wages have increased 2.6%, which equates to a mere $0.67 — certainly not a sign of building inflationary pressures. The average workweek was unchanged at 34.5 hours.

According to the latest report from the Bureau of Economic Analysis, consumer income and spending increased in March. Consumer income rose 0.3% for the month, the same increase as February. Consumer spending rose 0.4% following no gain in February. The personal consumption expenditures price index didn’t change from February. However, both the PCE price index and the core (excluding food and energy) price index are up 2.0% and 1.9%, respectively, over the last 12 months — right at the target inflation rate sought by the Federal Open Market Committee.

According to the Bureau of Economic Analysis, the international trade in goods and services deficit was $49.0 billion in March, down $8.8 billion from February. March exports were $208.5 billion, $4.2 billion more than February exports. March imports were $257.5 billion, $4.6 billion less than February imports. Year-to-date, the goods, and services deficit increased $25.5 billion, or 18.5%, from the same period in 2017. Exports increased $39.2 billion, or 6.8%. Imports increased $64.7 billion, or 9.1%.

Manufacturing conditions continued to improve in April, as evidenced by the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™, which registered its highest level since September 2014. The production of goods accelerated and new orders grew while exceeding the pace of output. Purchasing manager respondents suggested that greater global demand for raw materials and recently introduced tariffs were key factors in increasing costs of production. This, in turn, led to average prices rising at the quickest pace since June 2011.

While the Markit PMI™ report was very positive, the Manufacturing ISM® Report On Business® was not so glowing — at least at first blush. The survey saw the April PMI® decrease 2.0 percentage points from March. New orders, production, employment, and inventories all regressed, while supplier deliveries and prices increased. While the numbers may indicate a slowdown in manufacturing, the respondents were quite encouraged with manufacturing overall. For instance, the Backlog of Orders Index reached its highest reading since May 2004. Production and employment continue to expand but have been restrained by labor and skill shortages. The Prices Index is at its highest level since April 2011.

The latest Non-Manufacturing ISM® Report On Business® revealed business activity slowed in that sector during April. Employment and supplier deliveries held down the rate of growth for non-manufacturing industries. New orders and prices increased in April over March. According to the report, “respondents have expressed concern regarding the uncertainty about tariffs and the effect on the cost of goods. Overall, the respondents remain positive about business conditions and the economy.”

In the week ended April 28, there were 211,000 initial claims for unemployment insurance, an increase of 2,000 from the previous week’s level. The advance insured unemployment rate fell to 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended April 21 was 1,756,000, a decrease of 77,000 from the prior week’s level, which was revised down by 4,000. This is the lowest level for insured unemployment since December 8, 1973, when it was 1,717,000.

Eye on the Week Ahead

The first noteworthy economic reports for April are out this week, including the Consumer Price Index and the Producer Price Index. The latest import and export prices for April could begin to show the impact, if any, of the recent trade policies adopted by the United States.

April was marked by the impending tariff war between the United States and China. Tensions between the world’s two largest economies certainly affected stocks both home and abroad. Escalating strife in Syria posed an additional reason for investors to be concerned. However, surging energy stocks lifted the market as crude oil prices approached $70 per barrel for the first time in almost three years. Talks between North and South Korea also helped ease investor tensions. By the close of April, the dollar reached its highest level since January, while yields on 10-year Treasuries approached 3.0% for the first time since 2014 — signs that the world views U.S. economic growth as on the rise.

With all of the upheaval during the month — both positive and negative — it’s no wonder that equities essentially closed April about where they began the month. Each of the benchmark indexes listed here posted meager positive monthly gains over their March closing values. The Global Dow enjoyed the best month, as the only index listed here to post a gain of over 1.0%. The Russell 2000 gained a little less than 1.0%, while the large caps of the Dow and S&P 500 crept up about 0.25%, respectively. The Nasdaq posted the smallest gain; however, it leads the year-to-date race by a telling margin.

By the close of trading on April 30, the price of crude oil (WTI) was $68.57 per barrel, up from the price of $64.91 per barrel on March 29. The national average retail regular gasoline price was $2.798 per gallon on April 23, down from the March 26 selling price of $2.648 but $0.199 more than a year ago. The price of gold decreased by the end of April, closing at $1,316.10 on the last trading day of the month, down from its price of $1,329.60 at the end of March.

Market/Index

2017 Close

Prior Month

As of April 30

Month Change

YTD Change

DJIA

24719.22

24103.11

24163.15

0.25%

-2.25%

NASDAQ

6903.39

7063.44

7066.27

0.04%

2.36%

S&P 500

2673.61

2640.87

2648.05

0.27%

-0.96%

Russell 2000

1535.51

1529.43

1541.88

0.81%

0.41%

Global Dow

3085.41

3026.70

3061.73

1.16%

-0.77%

Fed. Funds

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.73%

2.95%

22 bps

54 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Month’s Economic News

Employment: Total employment rose by 103,000 in March following February’s upwardly revised total of 326,000 new jobs. Employment gains occurred in healthcare, mining, and manufacturing. The unemployment rate remained at 4.1%, with roughly 6.6 million eligible workers unemployed. Over the year, the number of long-term unemployed was reduced by 338,000. The labor participation rate was little changed at 62.9%. The employment-population ratio held at 60.4% in March. The average workweek was unchanged at 34.5 hours for the month. Average hourly earnings increased by $0.08 to $26.82. Over the last 12 months, average hourly earnings have risen $0.71, or 2.7%.

FOMC/interest rates: The Federal Open Market Committee did not meet in April. Its next scheduled meeting is during the first week of May.

GDP/budget: The initial estimate of the first-quarter gross domestic product showed expansion at an annual rate of 2.3%, according to the Bureau of Economic Analysis. The fourth-quarter GDP grew at an annualized rate of 2.9%. Consumer spending rose 1.1% in the first quarter after advancing 4.0% in the fourth quarter. Spending on durable goods, which had increased 13.7% in the fourth quarter, dropped 3.3% in the first quarter. The government deficit was $208.74 billion in March, compared to February’s deficit of $215.25 billion. The fiscal 2018 deficit (which began in October 2017) is $599.71 billion — an increase of $72.85 billion, or 13.8%, above the deficit over the same period last year.

Inflation/consumer spending: Inflationary pressures continued to show upward momentum in March. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) ticked up 0.4% in March following a February gain of 0.2%. The core PCE price index (excluding energy and food) also jumped ahead 0.2% in March. Both personal (pre-tax) income and disposable personal (after-tax) income climbed 0.3%, respectively, over the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) climbed 0.4% in March.

The Consumer Price Index dropped 0.1% in March after climbing 0.2% in February. Over the last 12 months ended in March, consumer prices are up 2.4%. Core prices, which exclude food and energy, are up 2.1% for the year.

Prices at the wholesale level expanded in March. The Producer Price Index showed the prices companies receive for goods and services jumped 0.3% in March. Year-over-year, producer prices have increased 2.7%. Prices less food and energy increased 0.3% for the month and are up 2.9% over the last 12 months.

Housing: Home sales improved in March. Total existing-home sales climbed 1.1% for the month following a 3.0% gain in February. However, year-over-year, existing home sales are down 1.2%. The March median price for existing homes was $250,400, which is 5.8% higher than the March 2017 price of $236,600. Inventory of existing homes for sale rose 5.7%, representing a 3.6-month supply. New home sales rebounded in March following a dip in February. The Census Bureau’s latest report reveals sales of new single-family homes increased 4.0% in March. The median sales price of new houses sold in March was $337,200 ($326,800 in February). The average sales price was $369,900 ($376,700 in February). There were 301,000 houses for sale at the end of March, which represents a supply of 5.2 months at the current sales rate.

Manufacturing: Industrial production edged up 0.5% in March after increasing 1.0% in February. Manufacturing output rose 0.1% for the month, after climbing 1.5% in February. Total industrial production was 4.3% higher in March than it was a year earlier. Capacity utilization for the industrial sector moved up 0.3 percentage point in March following a 0.7 percentage point increase in February. New orders for manufactured durable goods climbed 2.6% in March following a 3.5% jump in February. For the year, new durable goods orders are up 8.7%.

Imports and exports: The advance report on international trade in goods revealed that the trade gap decreased by $7.8 billion in March from February. The deficit for March was $68.0 billion, with exports of goods climbing 2.5%, while imports decreased 2.1% in March compared to February. For the month, total imports ($208.1 billion) far exceeded exports ($140.1 billion). Import prices were flat in March after increasing 0.3% in February. For the year, import prices have increased 3.6%. Prices for exports advanced 0.3% in March and are up 3.4% for the year.

International markets: Trade tensions between the United States and China continue to loom entering May, although both sides are working behind the scenes to reach a compromise over their mutual tariff threats. However, some experts see the spat between the two economic giants as having a direct impact on global economic growth. The European Central Bank left its monetary policy in place, leaving lending rates at their March 2016 levels. European corporate earnings reports for the first quarter were mixed. Data from the United Kingdom’s Office of National Statistics showed the British economy expanded a disappointing 0.1% in the first quarter of 2018. The Bank of Japan maintained its short-term interest rates at -0.1% while continuing the bank’s commitment to maintain the current monetary base until the core consumer price index reaches an inflation target of 2.0%.

Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, increased in April following a decrease in March. The index sits at 128.7, up from 127.0 in March. According to the report, consumer sentiment improved relative to the current economy, while expectations for future economic growth also improved.

Eye on the Month Ahead

May could see more market volatility as the political climate, both home and abroad, drives investor behavior. The month starts off with the Federal Open Market Committee meeting. Another interest rate hike could add to investor uneasiness, although such a move by the Committee would be a sign of continued economic strengthening.

An avalanche of corporate earnings reports impacted the market last week. Unfortunately, there were enough lackluster corporate earnings statements to prompt investors to exercise caution, resulting in a relatively flat week for equities. The Dow fell the most — over 0.5% — while the S&P 500 essentially broke even. The remaining indexes listed here lost some value by last week’s end. As it stands, only the Nasdaq and the Russell 2000 are ahead of their year-end values, while the Dow has lost over 1.5% as of last Friday. On the other hand, long-term bond yields soared as prices fell (bond prices and yields move in opposite directions). By midweek, the yield on 10-year Treasuries surpassed 3.0% for the first time in several years, ultimately falling back to where yields began the week.

The price of crude oil (WTI) climbed again last week, closing at $68.26 per barrel early Friday evening, up from the prior week’s closing price of $67.39 per barrel. The price of gold (COMEX) fell to $1,337.60 by early Friday evening, down from the prior week’s price of $1,348.60. The national average retail regular gasoline price increased to $2.798 per gallon on April 23, 2018, $0.051 higher than the prior week’s price and $0.349 more than a year ago.

Market/Index

2017 Close

Prior Week

As of 4/27

Weekly Change

YTD Change

DJIA

24719.22

24462.94

24311.19

-0.62%

-1.65%

Nasdaq

6903.39

7146.13

7119.80

-0.37%

3.13%

S&P 500

2673.61

2670.14

2669.91

-0.01%

-0.14%

Russell 2000

1535.51

1564.12

1556.24

-0.50%

1.35%

Global Dow

3085.41

3083.28

3075.04

-0.27%

-0.34%

Fed. Funds target rate

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.96%

2.95%

-1 bps

54 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The first, or “advance,” estimate of the gross domestic product for the first quarter of 2018 showed economic growth at an annual rate of 2.3%. The fourth-quarter GDP increased at an annualized rate of 2.9%. Business and service spending helped drive the GDP in the first quarter. The price index for gross domestic purchases increased 2.8% in the first quarter, compared with an increase of 2.5% in the fourth quarter. The personal consumption price index increased 2.7%, the same increase as in the fourth quarter. Excluding food and energy prices, the PCE price index increased 2.5%, compared with an increase of 1.9% in the fourth quarter. Personal income increased $182.1 billion in the first quarter, compared with an increase of $186.4 billion in the fourth quarter. Disposable (after-tax) personal income increased $222.1 billion, or 6.2%, in the first quarter, compared with an increase of $136.3 billion, or 3.8%, in the fourth quarter. Personal saving was $462.1 billion in the first quarter, compared with $379.8 billion in the fourth quarter.

While not at the pace set last year, sales of existing homes grew for the second consecutive month in March. Total existing home sales rose 1.1% over February, but are 1.2% below their sales pace of a year ago. While interest in existing home purchases remains solid, weak inventories and increasing prices may be keeping some potential buyers out of the market. Total housing inventory climbed 5.7% last month, but is 7.2% lower than March 2017. Unsold inventory is at a 3.6-month supply at the current sales pace. The median existing-home price for all housing types in March was $250,400, up 5.8% from March 2017. Single-family home sales rose only 0.6% in March — a pace that’s 1.0% below last year. The median existing price for single family home sales was $252,100 in March, up 5.9% from March 2017.

New home sales also improved in March, jumping up by 4.0% over February’s revised rate. Sales of new homes are 8.8% ahead of their March 2017 pace. The median sales price of new houses sold in March 2018 was $337,200. The average sales price was $369,900. There’s a 5.2-month inventory of new homes available for sale in March, which is down slightly from the 5.4-month supply in February.

New orders for manufactured durable goods in March increased $6.4 billion, or 2.6%, following a 3.5% gain in February. Transportation equipment drove the March gain, as orders for durable goods excluding transportation showed no increase from February. Shipments of durable goods climbed 0.3% in March, while unfilled orders rose 0.8%. Inventories of manufactured durable goods in March, up 20 of the last 21 months, increased $0.3 billion, or 0.1%.

The international trade deficit was $68.0 billion in March, down $7.8 billion from February. Exports of goods for March were $140.1 billion, $3.4 billion more than February exports. Imports of goods for March were $208.1 billion, $4.4 billion less than February imports.

Confidence in the economy picked up in April after falling in March. According to The Conference Board Consumer Confidence Index®, consumer confidence increased for present and future economic conditions.

In the week ended April 21, there were 209,000 initial claims for unemployment insurance, a decrease of 24,000 from the previous week’s level, which was revised up by 1,000. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. The advance insured unemployment rate remained at 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 14 was 1,837,000, a decrease of 29,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Several potential market-moving reports are out this week. The release of the latest report on consumer income and spending is out, which is an inflation indicator relied upon by the Federal Open Market Committee. Speaking of which, the FOMC also meets this week. The Committee raised the federal funds target rate following its last meeting in March, and hinted at more rate hikes by the end of the year. The week closes with the employment report for April.

The Markets (as of market close March 29, 2018)

The first quarter of 2018 began as the fourth quarter of 2017 ended: with strong market gains. The Nasdaq led the way by the end of January, posting a monthly increase of almost 7.40%, followed by the large caps of the Dow (5.79%) and the S&P 500 (5.62%). The employment sector remained strong, with 239,000 new jobs added in January and average hourly earnings climbing 0.3%. Consumer prices rose 0.5% in January, while personal income increased 0.4%. The trade gap continued to widen, which has proven to be a focal point of the current administration. Nevertheless, consumer confidence in the economy increased in January with expectations for continued strengthening in the coming months.

Volatility returned to the stock market in February, with each of the benchmark indexes listed here posting notable losses from the prior month. Nasdaq, while down, fared better than the large caps of both the S&P 500 and the Dow. Investor concerns over rising inflation and interest rates seemed to trigger volatility. A strong labor report in February revealed a 2.9% increase in average hourly wages over a year earlier, the addition of 313,000 new jobs, and decreasing unemployment insurance claims. These factors combined to prompt investors to conclude that higher labor costs may eat into corporate profits, which might prompt the Fed to raise interest rates at a faster pace. February also saw long-term bond yields surge as evidenced by a 16-basis-point increase in yields for 10-year Treasuries, as bond prices fell.

While many markets closed for Good Friday, March was not a good month for the benchmark indexes listed here, except for the small caps of the Russell 2000. Otherwise, each of the indexes closed March in the red, led by the Dow, which was followed by the Global Dow, Nasdaq, and the S&P 500. March brought more concerns for investors with the administration’s imposition of tariffs on steel and aluminum imports and the threat of a trade war with China. Much of the month saw retaliatory threats lobbed across the Pacific.

The first quarter as a whole saw only the Nasdaq post modest gains. The Dow fell by almost 2.50% by the end of the quarter, far outpacing losses suffered by the other indexes listed here. The Global Dow fell nearly 2.0%, followed by the S&P 500 and the Russell 2000. Prices for 10-year Treasuries fell by the end of the quarter, pushing yields up by 32 basis points. Crude oil prices closed the month and quarter at about $64.91 per barrel by the end of March. Oil began the quarter at $61.55 per barrel and remained over $60.00 for much of the first quarter. Gold closed the quarter at roughly $1,329.60 — ahead of where it opened the quarter ($1,305.10). Regular gasoline, which was $2.548 per gallon on February 26, soared to $2.648 on the 26th of March.

Market/Index

2017 Close

As of March 29

Month Change

Quarter Change

YTD Change

DJIA

24719.22

24103.11

-3.70%

-2.49%

-2.49%

NASDAQ

6903.39

7063.44

-2.88%

2.32%

2.32%

S&P 500

2673.61

2640.87

-2.69%

-1.22%

-1.22%

Russell 2000

1535.51

1529.43

1.12%

-0.40%

-0.40%

Global Dow

3085.41

3026.70

-3.06%

-1.90%

-1.90%

Fed. Funds

1.25%-1.50%

1.50%-1.75%

25 bps

25 bps

25 bps

10-year Treasuries

2.41%

2.73%

-13 bps

32 bps

32 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Monthly Economic News

Employment: Total employment rose by 313,000 in February following January’s upwardly revised total of 239,000. Employment gains occurred in retail trade, construction, professional and business services, and manufacturing. The unemployment rate remained at 4.1%. In February, total employment rose by 785,000. Over the year, the number of long-term unemployed was reduced by 369,000. The labor participation rate rose to 63.0%. The employment-population ratio increased to 60.4% in February. The average workweek for all employees increased by 0.1 hour to 34.5 hours in February. Average hourly earnings increased by $0.04 to $26.75. Over the year, average hourly earnings have risen $0.68, or 2.6%.

FOMC/interest rates: The Federal Open Market Committee, meeting for the first time under new chair Jerome Powell, increased the federal funds target rate range by 25 basis points to 1.50%-1.75%. The Committee said the labor market is strong, but economic activity was described as “moderate.” Inflation has moved little since the beginning of the year, yet the Committee expects prices to move up gradually over the next 12 months. The Committee forecasts more rate hikes throughout the remainder of 2018.

GDP/budget: The third and final estimate of the fourth-quarter gross domestic product showed expansion at an annual rate of 2.9%, according to the Bureau of Economic Analysis. The third-quarter GDP grew at an annualized rate of 3.2%. Consumer spending rose 4.0%, with notable increases in durable goods spending (13.7%). As to the government’s budget, February’s deficit surged to $215.25 billion, compared to January’s deficit of $49.2 billion. The fiscal 2018 deficit (which began in October 2017) is $390.97 billion — an increase of $40.35 billion, or 11.5%, above the deficit over the same period last year.

Inflation/consumer spending: Inflationary pressures continued to show upward momentum in February. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) ticked up 0.2% for February following a January gain of 0.4%. The core PCE price index (excluding energy and food) also jumped ahead 0.2% in February. Personal (pre-tax) income increased 0.4% and disposable personal (after-tax) income climbed 0.4% over the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) climbed 0.2% in February, the same increase as the prior month.

The Consumer Price Index rose 0.2% in February after climbing 0.5% in January. Over the last 12 months ended in February, consumer prices are up 2.2%. Core prices, which exclude food and energy, are up 1.8% for the year.

The Producer Price Index showed the prices companies receive for goods and services also jumped 0.2% in February. Year-over-year, producer prices have increased 2.8%. Prices less food and energy increased 0.2% for the month and are up 2.5% over the last 12 months.

Housing: Home sales were a mixed bag in February. Total existing-home sales jumped 3.0% in February following a 3.2% dip in January. Year-over-year, existing home sales are up 1.1%. The February median price for existing homes was $241,700, which is 5.9% higher than the February 2017 price of $228,200. Inventory of existing homes for sale rose 4.6%, representing a 3.4-month supply. New home sales fell in February. The Census Bureau’s latest report reveals sales of new single-family homes fell 0.6% in February. The median sales price of new houses sold in January was $326,800 ($323,000 in January). The average sales price was $376,700 ($382,700 in January). There were 305,000 houses for sale at the end of February, which represents a supply of 5.9 months at the current sales rate.

Manufacturing: Industrial production edged up in February, increasing 1.1% compared to a downward-revised 0.3% drop in January. Manufacturing output grew at a rate of 1.2% — its largest gain since October. Capacity utilization for manufacturing also rose 0.7 percentage point in February, coming in at 78.1% — its highest reading since January 2015. New orders for manufactured durable goods climbed 3.1% in February following a 3.5% revised January decrease. For the year, new durable goods orders are up 8.9%.

Imports and exports: The advance report on international trade in goods revealed that the trade gap increased in February from January, rising from $75.3 billion to $75.4 billion. Exports of goods for February jumped 2.2% following January’s 2.4% drop. Imports of goods increased 1.4% after falling 0.2% in January. Still, total imports ($211.9 billion) far exceeded exports ($136.5 billion). Prices for both imported and exported goods and services advanced in February. Import prices rose only 0.4% for the month, while export prices increased 0.2%. For the year, import prices climbed 3.5%, while export prices jumped 3.3%.

International markets: Heightened worries of a trade war dominated international markets, as tariffs imposed by the United States on steel and aluminum went into effect. Trade with China became testy as President Trump announced tariffs on Chinese goods, prompting China to impose tariffs on U.S. imports. Elsewhere, the Bank of England maintained its monetary policy, leaving interest rates at 0.50%. The bank rate has not increased since last November. However, it appears interest rates are going up at some point this year. Most foreign stock indexes were subdued for March, with only a few countries’ indexes making marginal gains. European stocks dipped to lows approaching early 2017 values. Most major Japanese indexes are well in the red year-to-date, while China’s benchmark stock index has felt the brunt of the apparent trade war with the United States.

Consumer sentiment: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, decreased in March following an increase in February. The index sits at 127.7, down from 130.8 in February (an 18-year high). According to the report, consumer expectations were less positive in their assessment of current economic conditions, while consumers’ short-term expectations were tempered as well.

Eye on the Month Ahead

Moving to the second quarter of the year, the economy is expected to maintain its course of relative strength. However, if news out of Washington continues to concern investors, market volatility is likely to prevail.

Favorable first-quarter earnings reports helped push stocks higher for the second consecutive week. Led by the small caps of the Russell 2000, each of the benchmark indexes listed here posted gains by the end of last week. The energy sector continued to post strong returns, boosted by rising crude oil prices, which are approaching $70 per barrel. Treasury yields climbed as prices fell following a sell-off of Treasury bonds.

The price of crude oil (WTI) climbed again last week, closing at $68.26 per barrel early Friday evening, up from the prior week’s closing price of $67.39 per barrel. The price of gold (COMEX) fell to $1,337.60 by early Friday evening, down from the prior week’s price of $1,348.60. The national average retail regular gasoline price increased to $2.747 per gallon on April 16, 2018, $0.053 higher than the prior week’s price and $0.311 more than a year ago.

Market/Index

2017 Close

Prior Week

As of 4/20

Weekly Change

YTD Change

DJIA

24719.22

24360.14

24462.94

0.42%

-1.04%

Nasdaq

6903.39

7106.65

7146.13

0.56%

3.52%

S&P 500

2673.61

2656.30

2670.14

0.52%

-0.13%

Russell 2000

1535.51

1549.51

1564.12

0.94%

1.86%

Global Dow

3085.41

3057.98

3083.28

0.83%

-0.07%

Fed. Funds target rate

1.25%-1.50%

1.50%-1.75%

1.50%-1.75%

0 bps

25 bps

10-year Treasuries

2.41%

2.82%

2.96%

14 bps

55 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

Sales at the retail level grew 0.6% in March from the previous month, and 4.5% above March 2017. Motor vehicle and parts dealers saw a monthly sales increase by 2.0%, while health and personal care sales advanced 1.4% in March over February. Nonstore (internet) retail sales increased 0.8% for the month and are up 9.7% over March 2017.

New residential construction enjoyed a favorable March as building permits and housing starts surged. Residential building permits were 2.5% above February’s rate and are 7.5% ahead of March 2017. Privately owned housing starts in March were 1.9% above February’s estimate and 10.9% above the rate a year ago. Housing completions for all types of residential construction slowed in March, falling 5.1% below the prior month. Most of the March strength in the report is attributable to multifamily construction — single-family permits (-5.5%), starts (-3.7%), and completions (-4.7%) each fell off from February. Demand for housing continues to be solid, however, a dearth of labor coupled with escalating materials costs may be hampering new construction.

Industrial production rose 0.5% in March after increasing 1.0% in February. The output of consumer goods advanced 0.5% in March. After having climbed 1.5% in February, manufacturing production edged up 0.1% in March. Mining output rose 1.0%, mostly as a result of gains in oil and gas extraction and in support activities for mining. Total industrial production was 4.3% higher in March than it was a year earlier. Capacity utilization for the industrial sector moved up 0.3 percentage point in March.

In the week ended April 14, there were 232,000 initial claims for unemployment insurance, a decrease of 1,000 from the previous week’s level. The advance insured unemployment rate remained at 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 7 was 1,863,000, a decrease of 15,000 from the prior week’s level, which was revised up by 7,000.

Eye on the Week Ahead

Several important economic reports are out this week. Information on new and existing home sales in March is revealed. Last month, existing home sales fared better than sales of new homes. The first look at the gross domestic product for the first quarter comes at week’s end. The fourth-quarter GDP grew at a rate of 2.9%.